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Oil in Cambodia: Economic Boon or Disaster?


The Kingdom of Cambodia has recently discovered a bounty of untapped wealth.  It seems that off the coast of Cambodia, in the Gulf of Thailand, there are billions of dollars worth of oil reserves.  While the international energy community is turning its head towards Cambodia, the international development community is…


The Kingdom of Cambodia has recently discovered a bounty of untapped wealth.  It seems that off the coast of Cambodia, in the Gulf of Thailand, there are billions of dollars worth of oil reserves.  While the international energy community is turning its head towards Cambodia, the international development community is fearful that the revenue from the oil will stunt the country’s growth rather than enhance it.  No one can be sure of the long-term economic effects of the oil, but the discussion of the future of Cambodia has already begun.

Value of the Oil

Multiple studies have been conducted to estimate the amount of oil in the off the Cambodia coast.  Institutions such as the UN, World Bank and Harvard University have concluded that there might be as much as 2 billion barrels of oil and 10 trillion cubic feet of gas in the Cambodian reserves1.  Given the current prices on oil and gas, these reserves could provide Cambodia with an extra US $6 billion every year for the next twenty years2.  This would more than double the GDP, which according to 2006 estimates stands at US $5.122 billion3.

The country has designated six exploration blocks, only one of which, Block A, has been explored.  The US-based firm Chevron conducted the exploration of Block A and is said to have hit oil in five out of six wells4.  Chevron is leading an international pack of oil companies interested in gaining access to Cambodia’s resources.  Energy companies from France, China, Japan, South Korea, Kuwait, Thailand, Malaysia and Singapore are said to be bidding for exploration licenses and production agreements5. 

The Oil Curse

This sort of economic boon has the potential to lift one of the world’s most impoverished nations out of poverty, but experts worry that this potential will never be realized.  The fear is that Cambodia will fall under the ‘oil curse’.  When a developing nation finds itself with sudden wealth, it can result in an increase in corruption and a widening gap between the rich and the poor.
Experts point to the example of Nigeria, which is the biggest oil-producing nation in Africa but in which 70 percent of the population live off $1 a day6. 

Cambodia seems especially likely to follow this path.  Cambodia is already known for its corruption, and is currently governed by a Prime Minister, Hun Sen, who has been accused of putting little value on the rights of Cambodians7.  Foreign aid donors have been keeping the government in check by making aid contingent on respect of human rights, but once Cambodia reaps the benefit of the oil reserves it will not be reliant on foreign aid and will be able to act without the oversight of foreign organizations and governments8.

The Oil Blessing

Prime Minister Hun Sen has heard the voice of the skeptics and responded strongly.  At the recent 2007 Cambodia Economic Outlook Conference, he stated that any income from the oil would be put back into the country through development projects9.  The Prime Minister sees the oil as a blessing that will sustain Cambodia’s long-term growth, reduce poverty and foster economic diversity10.

While experts warn of the ‘oil curse’, some acknowledge that this economic windfall can greatly benefit the country, givent that it is used correctly.  The US Ambassador to Cambodia, Joseph A. Mussomeli, called for Cambodia to create a transparent policy framework and develop institutions to prevent the oil money from being misused11.  He added that if handled properly, this money could change the country considerably in the next ten years12.

Conclusion

Extraction of the oil is not slated to begin before 200913.  This gives the kingdom of Cambodia several years to plan the use of the income from the oil, and the rest of the world two years to wait and see if the oil reserves will push an entire country out of poverty or if it will increase corruption and disparity between the rich and the poor.  For better or for worse, the discovery of oil in the Gulf of Thailand will dramatically change the economic and social landscape of Cambodia.

Source: www.asiaecon.org |

 

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